All major states require the filing of a drilling permit before the drilling of a well. The filing for the permit is usually one of the last steps taken before drilling. Before the permit is filed for, companies incur significant expenses, including land costs, legal fees, and geological expenses, and, at that time, much of the infrastructure is in place. Thus, most well permits that are filed for are drilled. Barclays extensive analysis shows a strong relationship between drilling permit issuance and rig count. While lead time varies by cycles and states, most often it is roughly two months.
Drilling permits for the 30 states that Barclays monitors increased 0.5% in September 2012, following a 18% rise in August. Barclays believes permit activity reflects a return to normal permitting conditions following summer seasonality and indicates the early stages of a trough in the North American land market.
The Bureau of Ocean Energy Management (BOEM) issues permits for offshore wells drilled in the GOL on a rolling basis. BOEM permit announcements tend to lag contract awards for the offshore drillers typically by a couple of weeks. However, offshore permit issuances are one of the final steps prior ro commencement of drilling operations and help to indicate future offshore activity levels.
Barclays believes the deepwater rig counts will surpass pre-moratorium levels by year end and reach 45-50 by 2014. In September, the BOEM issued 13 total permits for floating rigs in the US GOM, down from 25 permits announced in August and 27 permits in July. There was one new well permit issued in September (down from 3 in August) and 11 revised new well permits (down from 19 in August). Of the 13 permits issued in September, 11 permits were for exploratory work and 2 were for development jobs. Exploratory locations (shallow water adn deep water) in the GOM stand at 32, up from 26 at year end and 23 locations this time last year. Despite the dip in permits issued in September, Barclays believes permit activity in the US GOM remains healthy and suggests a continued imprevement in the permitting process, which was stifled following the Moratorium. We believe the floating rig count in the US GOM is set to increase further as more deep water rigs are delivered and migrate to the region.
The BOEM issued 28 shallow water permits (including 3 for new wells) in the US GOM in September, down from 34 in August ( 7 for new wells) and 40 in July (3 new).